That is the theme of a 42-page ruling by Justice Laurence Pattillo of Ontario’s Superior Court of Justice, a decision which means the former insiders will not have their legal bills covered in actions brought by the new Look. Read the rest of the story here. [/np_storybar]

The 42-page ruling by Justice Laurence Pattillo of Ontario’s Superior Court of Justice, whereby the former executives of Look Communications are responsible for their own legal costs incurred as a result of being sued by the company, continues to make waves in legal circles.

“The court rightly afforded companies the ability to shake off the heavy burden of indemnification when there is compelling evidence of bad faith,” said Dimitri Lascaris, a lawyer with Siskinds. “This decision is therefore a wake-up call to corporate Canada. The days of virtual immunity from civil liability are over.”

Adds another lawyer, who requested anonymity: “It’s monumental. Justice Pattillo has rung a very clear bell that if you are an independent director then you should not let management bully you for their own agenda and you have to be extraordinarily mindful of your financial conflicts with the company.”

In the decision, the question of whether the former executives, who were granted $1.55-million to cover their legal costs just prior to being ousted, should have their expenses paid was decided at a special hearing — rather than at a full trial that will focus on their behaviour while running Look.

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The sides had different views:

• The former insiders argued that under Look’s bylaw and/or the indemnification agreement, the company is required to pay their legal expenses “without any consideration of their entitlement to indemnity at this stage of the proceedings.” In other words, “all persons are presumed to act in good faith unless proven otherwise,” meaning the indemnity cannot be determined at the hearing “and must be dealt with at trial.” If the insiders lost at trial, they agreed to pay back the monies that were advanced.

• Look, represented by Goodmans, argued there is a supervisory role for the court in such matters “where the corporation has commenced an action against them for breach of fiduciary duty.” Look also argued that the former insiders “have acted mala fides and not in its best interests.” To support that argument, Look provided a “significant amount of evidence,” particularly on the matter of the sale of its largest asset and the actions of the insiders. The insiders received about $15.5-million or 24.9% of the net sale proceeds.

Look argued that it “may only advance the monies after the court is” satisfied that the individual applicants have met the good faith conditions prescribed by s. 124 (3), of the Canada Business Corporations Act.

Justice Pattillo mulled those two different views: corporations shouldn’t be allowed to “arbitrarily avoid indemnity or advancement obligations” if the former insiders have acted in good faith; but by not paying insiders who have not acted in good faith means they cannot further harm the corporation.

Ultimately Justice Pattillo ruled that s. 124 (4) of the CBCA “is not limited to just derivative actions. It applies to both actions by the corporation and actions on behalf of the corporation.”

For that to happen, Look had to meet a high standard:, it can’t just raise the allegation of bad faith in its pleadings, it is required to meet a “higher evidentiary standard.” Accordingly, Look had to establish a strong prime facie case that those seeking interim advancement “acted mala fides.”

Justice Pattillo ruled differently from what Justice Frank Marrocco said in April on a similar matter dealing with Unique Broadband Systems, which happens to be Look’s largest shareholder, and Jolian Investments Inc. (the consulting company of Gerald McGoey, Look’s chief executive.) That matter is under appeal.

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